''South Australia v Commonwealth'' ("the First Uniform Tax case"). is a decision of the

High Court of Australia The High Court of Australia is Australia's apex court. It exercises Original jurisdiction, original and appellate jurisdiction on matters specified within Constitution of Australia, Australia's Constitution. The High Court was established fol ...

that established the

Commonwealth government The Australian Government, also known as the Commonwealth Government, is the national government of Australia, a federal parliamentary constitutional monarchy. Like other Westminster-style systems of government, the Australian Government i ...

's ability to impose a scheme of uniform

income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

across the country and displace the State. It was a major contributor to Australia's vertical fiscal imbalance in the spending requirements and taxing abilities of the various levels of government, and was thus a watershed moment in the development of

federalism in Australia Federalism was adopted, as a constitutional principle, in Australia on 1 January 1901 – the date upon which the six self-governing Australian Colonies of New South Wales, Queensland, South Australia, Tasmania, Victoria, and Western Australia f ...

Facts

In 1942, during the

Second World War World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...

, the Commonwealth government needed extra revenue for the war effort. At the time, income taxes were levied at both the State and federal level. The Commonwealth requested the States to transfer their taxing powers for the duration of the war to allow one uniform national income tax system, with grants given back to the states to compensate for the lost revenue. Doubting that the powers would be returned, the states rejected the request. In response, the Commonwealth moved to occupy the field unilaterally. As s51(ii) of the

Constitution A constitution is the aggregate of fundamental principles or established precedents that constitute the legal basis of a polity, organisation or other type of Legal entity, entity and commonly determine how that entity is to be governed. When ...

only allows the Commonwealth to impose federal taxation for federal purposes, it could not cover the field of taxation with any law. Nevertheless, the Commonwealth introduced a uniform income tax through an intricate scheme of four pieces of legislation. * The Income Tax Act 1942, raised income tax levels to the existing state levels, setting it at such a rate that made it politically impossible for states to impose their own income taxes. The amount raised was enough to cover the war effort and grants for the states * The States Grants Act 1942, provided a grant for each state equal to what it would have raised on its own income tax, on the condition that it did not raise its own income tax * Section 221 of the Income Tax Assessment Act 1942, required taxpayers to meet their Commonwealth tax liabilities before state tax liabilities * the Income Tax (Wartime Arrangements) Act 1942, required that the states transfer to the Commonwealth all state staff, offices, furniture and records used to collect income tax The laws were challenged by the states of

South Australia South Australia (commonly abbreviated as SA) is a state in the southern central part of Australia. It covers some of the most arid parts of the country. With a total land area of , it is the fourth-largest of Australia's states and territories ...

, Victoria,

Queensland ) , nickname = Sunshine State , image_map = Queensland in Australia.svg , map_caption = Location of Queensland in Australia , subdivision_type = Country , subdivision_name = Australia , established_title = Before federation , established_ ...

and

Western Australia Western Australia (commonly abbreviated as WA) is a state of Australia occupying the western percent of the land area of Australia excluding external territories. It is bounded by the Indian Ocean to the north and west, the Southern Ocean to th ...

Decision

The High Court held the laws were valid, despite the practical result being the inability of the states to impose income tax. The Income Tax Act 1942, was held to be valid despite the fact the rate was so high as to preclude the states from imposing income tax. As taxation is a non-purposive power, regardless of the object of the law, the subject matter was taxation, and hence valid under section 51(ii) of the Constitution. The States Grants Act 1942, was held to be valid, despite its coercive effect. The Commonwealth can use the section 96 grants power to induce a state to exercise its own powers as well as abstain from using its powers. Hence the Commonwealth can do such things to encourage or discourage a state from exercising its powers, which are technically not coercion. Indirect compulsion is constitutional. While the Act made it almost impossible for the States to continue taxing, Chief Justice John Latham noted that the states still had the choice not to accept Commonwealth grants. Justice

Edward McTiernan Sir Edward Aloysius McTiernan, KBE (16 February 1892 – 9 January 1990), was an Australian lawyer, politician, and judge. He served on the High Court of Australia from 1930 to 1976, the longest-serving judge in the court's history. McTiernan ...

also considered the Act valid under the defence power. Section 221 of the ''Income Assessment Act 1942'', was held to be valid pursuant to section 51(ii) or was at the least valid under the implied incidental power. The subject matter of the law and the purpose of the law were both with respect to matters of taxation. McTiernan justified this section as valid under the defence power. The Income Tax (Wartime Arrangements) Act 1942, was upheld by a majority under the defence power.

Aftermath

The decision in relation to section 221 of the ''Income Assessment Act 1942'' was subsequently overturned by the High Court in the Second Uniform Tax case..

References

* {{cite book , author1=Gerangelos, P , author2=Aroney, N , author3=Lee, HP , author4=Murray, S , author5=Evans, S , author6=Emerton,P , display-authors=1 , title= Winterton's Australian federal constitutional law: commentary and materials , year=2013 , edition=3rd , publisher=Thomson Reuters , ISBN=9780455230412 High Court of Australia cases 1942 in Australian law Australian constitutional law Taxation in the Australian Constitution cases Grants power in the Australian Constitution cases 1942 in case law

Facts

Decision

Aftermath

See also

References